ECONOMIC HIGHLIGHTS

Public Sector Companies

LOOK BEYOND DISINVESTMENTS

By Dr. Vinod Mehta

Former Director (Research) ICSSR

In spite of the assertions of the Finance Minister that disinvestment in the Public Sector Units (PSUs) is on track, the fact is that it has virtually come to a standstill.  In the last three years, the Government has not been able to convince its Left partners to agree to a part of disinvestment in some of the PSUs.

Significantly, it has been more than a decade since the Disinvestment Commission was set up (and later wound up). Recall, it had made a number of recommendations, but still not much headway has been made in this direction. Moreover, emphasis on disinvestment only is likely to attract opposition. Perhaps the opposition would not be so vocal if it were to be accompanied by reforms in the management of public sector units.

The factors behind our ailing public sector units are common knowledge. This is bound to happen as the public sector organizations are run more like Government departments rather than commercial undertakings. Decisions are never taken in time, seniority prevails over merit, good work cannot be rewarded while bad or indifferent work goes unpunished. The hierarchical system is very rigid and there is no accountability ---- this is our public sector!

Not that these things were not known earlier, but in the liberal economic atmosphere and at a time when we are facing a resource crunch, the continuation of this kind of situation does not make any sense.

It will be recalled that after taking over the Chairmanship of Air India and Indian Airlines, Russi Mody expressed his unhappiness over the working of these two airlines and his inability to do anything about it. Since he came from the private sector background, Mody, could openly express his frustration. But there are a hundred of other Russi Modys in various public sector units who are unable to express their anguish so openly.

Weak Industrial Base

The public sector units were set up at a time when the industrial base of the country was very weak and the domestic industrialists were neither in a position nor had the resources to make huge investments.  All those who advocated the setting up of public sector units also said that over a period of time the public sector units would be contributing in a big way to the exchequer.

Further, the profits of the public sector units would supplement the resources raised through taxes. None ever conceived that these loss-making units would be perpetually bailed out by the Government. 

What we are witnessing today is that the PSUs are being treated as sacred cows. There are PSUs which have been perpetually losing money. Questionably, if this was not the intention of the originators of the idea of the public sector undertakings then on what basis are we defending these loss-making units?

Take for instance, the Indian Drugs and Pharmaceutical Ltd. The IDPL is the largest Central Pharma Public Sector Undertaking in India with plants at Rishikesh, Gurgaon, Chennai, Hyderabad and Muzaffarpur. Set up in the 60’s, the IDPL was formally declared sick by the Board for Industrial & Financial Reconstruction (BIFR) on August 12 1992.

A revival package for the Company was formulated and approved by the BIFR on February 10 1994.  It is almost 13 years and this PSU has not been rehabilitated. While drug companies the world over earn huge profits, the IDPL has been ailing almost since its birth and stands closed. The responsibility for its losses rests on following the same administrative approach of a Government department rather than modern management method.

Another public sector unit, Hindustan Photo and Films too perpetually ran into losses and stands shut. Again, while photo companies across the world are netting huge profits, here is a public sector company running into losses! With digital photography taking roots the demand for photo films is shrinking and many photo film making companies are switching to the new medium for storing photo images. In such a situation can this PSU ever be revived?

Write Off Loans?

The unprofessional management of the nationalized banks is too well known. Some of these banks had totally eroded their capital base in the past but were bailed out by the Government. Sadly, these banks are being run more or less like Government departments, no matter that banking is a commercial activity. Can a commercial bank write off the loans of borrowers (or provide loan on political considerations) as Indian banks do?

If the private sector banks were to do this, they would be out of business the next day.  Since the nationalized banks belong to the Government, the politicians can announce waiving of loans to farmers and then make up the losses of the banks through budgetary support. Again, since most of the bank Chairmen are political appointees, they hardly care for the RBI warnings.

Bluntly, public sector units function more like Government departments rather than commercial units run by professionals who have the necessary skills to manage them.  And so long as the PSUs continue to be run as such, there is very little hope that they will ever show profits. And where they have shown profits, it is largely due to the increase in the administered prices of their products rather than an improvement in their functioning.

The time has come to take a clear cut stand on the role of the public sector units in the country. It must be understood that loss-making PSUs are a drain on our resources --- resources which could have been used for social spending like healthcare, education, housing, safety net etc are being used to cover the losses of these units.

There appears to be no justification for making good the losses of these units year after year. Making up the losses of Indian Airlines and Air India means that the taxpayers’ money is being used to pay for the travel of Government officers, businessmen and others.

Travellers Being Subsidized

Similarly, budgetary support to shore up the losses of Air India means that the international traveller is being subsidized by the Indian taxpayer.  Ditto is the case of the losses of other public sector units like the IDPL, HPF, banks etc. The question is: How long will the taxpayer be asked to bear the burden of these loss-making units?

The country must take a cue from Russi Mody’s frustration, expressed over a decade ago, and do something to allow the public sector units to run as professional commercial organizations. Presently, what is more important than disinvestment is to totally delink the PSUs from the Ministries and issue clear guidelines as to what these units are expected to do.

The way out can be to set up an apex independent statutory body like the RBI or SEBI, whose job would be to monitor the functioning of all the public sector units, recruit professional staff without any interference from the Ministries and politicians, fill up the top positions, overlook mergers and possible disinvestment as well as have the powers to close down or sell off the units which are perpetually running into losses. 

The inefficiency of these PSUs and the budgetary support to the loss-making units is perhaps the biggest scandal which needs to be dealt with at all cost. There is no point in treating the PSUs as sacred cows. They must run efficiently and show profits as any other commercial organization. This was also the original idea of setting up these units.

As for as disinvestment of a part of a PSU is concerned, there need not be any hue and cry over it. What is needed is to specify the upper limit on disinvestment in a PSU.  Whether it is to be 5 per cent, 10, 20 or 49 per cent is a political decision. It would be better if political parties come to an understanding on this, sooner than later. ---- INFA

(Copyright India News & Feature Alliance)